800V DC Architecture Drives AI Power Demand; Delta's Q1 Results Beat Expectations

Overview

This UBS research report reviews Delta Electronics' (2308.TW) Q1 2026 results. Benefiting from strong demand for AI server power supplies and liquid cooling solutions, Delta's Q1 revenue and margins exceeded both UBS and market expectations. The report notes that as NVIDIA's next-generation AI accelerators transition to an 800V DC power architecture, Delta's market position in AI power and thermal management will be further consolidated. Based on the robust growth outlook, UBS has raised its 2026/27 earnings forecasts by 8% and significantly increased its target price from NT$2,000 to NT$2,600, while maintaining a Buy rating.

Core views

Performance: Delta achieved Q1 2026 revenue of NT$159.6bn (-1% QoQ/+34% YoY), outperforming prior UBS and market expectations of a 2% QoQ decline. Growth was primarily driven by the Power Electronics segment, which accounted for 54% of revenue, growing +15% QoQ/+87% YoY, with operating margin expanding by 190bp to 22.1%. The Infrastructure segment (32% of revenue) declined 13% QoQ but grew 48% YoY, with operating margin improving by 130bp to 19.7%. Overall gross margin and operating margin improved by 240bp/150bp to 37.0%/17.8%, mainly benefiting from a higher mix of AI business and a 70bp write-back related to EV customers. EPS reached NT$7.91, above UBS's estimate of NT$7.69 and the market consensus of NT$7.4. Demand Outlook: UBS expects Q2/Q3 revenue to grow 18%/11% QoQ, with momentum likely continuing through year-end. 660kW power sidecars are being delivered ahead of schedule, with small-volume shipments in Q3, ramping rapidly from Q4 into 2027; they are expected to account for 20-30% of Vera Rubin and become standard configuration for Rubin Ultra. Increased design complexity and the shift toward power shelf solutions have raised Delta's share of rack BOM costs from 1-1.5% for GB300 to 2-3% for early power shelf designs. The liquid cooling business also maintains high growth and high margins, with its sales contribution rising from 1% to 9% in 2025. Long-term Growth Logic: As AI server power density climbs, power supply is upgrading from 130-140kW for Blackwell to 500-1MW+ for Rubin Ultra, creating demand for standalone 800V DC power shelves. UBS estimates NVIDIA's rack power supply TAM will grow at a 60% CAGR from US$2.3bn in 2025 to US$15.6bn in 2029, supporting Delta in scaling its NVIDIA-related business to US$9bn by 2029 (representing 20% of revenue at that time). Additionally, new products such as solid-state transformers and solid oxide fuel cells are expected to further expand market opportunities starting in 2028. Capacity & Investment: 2025 capex reached NT$46.1bn. Management guided for 2026 capex to grow over 10% YoY, primarily supporting AI and infrastructure investments and overseas expansion in Mainland China (45% of total capacity), Thailand (30%), and the US (<10%). The company is also prototyping Ceres SOFC fuel cells in Tainan and establishing the Guanyin plant to prepare for mass production in 2028, while collaborating with Centrica in the UK to build a demonstration site in 2027.

Analysis framework

UBS's analysis follows the thesis of "AI computing upgrade → Power architecture evolution → Increase in Delta's value per unit → Revenue and margin expansion." First, the report starts with the evolution of NVIDIA AI server power density (from Blackwell to Rubin Ultra to Feynman), noting that the surge in power from 130-140kW to 1MW+ will create demand for standalone 800V DC power shelves, thereby increasing the value share of power supplies in the rack BOM. Second, through quarterly tracking of Delta's business segments, UBS verifies that AI power and liquid cooling businesses have become core growth engines and drivers of margin improvement. Finally, regarding valuation, UBS employs a P/E multiple approach; referencing the trend of global and Chinese peers re-rating to 30-40x, UBS raises Delta's target P/E from 30x to 35x (based on 2027-28E average EPS) to derive a new target price of NT$2,600, supplemented by scenario analysis (Upside NT$3,200 / Base NT$2,600 / Downside NT$1,700) to define the risk-reward ratio (2.2:1 skewed to upside).

Methodology notes

• Valuation MethodPE/PEG valuation

  Price-to-Earnings (P/E) Valuation Method

  The report uses a P/E multiple approach to value Delta, calculating the target price based on 35x 2027-28E average EPS. This method assumes the market is willing to pay a certain multiple for the company's future earnings, where the level of the multiple reflects the strength of growth expectations. UBS raised the target P/E from 30x to 35x, reasoning that global and Chinese peers have re-rated to the 30-40x range, and Delta's current valuation is approximately 2 standard deviations above its 5-year average, reflecting its leading position in AI power supplies and high growth expectations.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Logic for Increasing Content per Unit

  The report analyzes how AI server upgrades increase Delta's value share within each rack. With the upgrade from standard power supplies to 800V DC power shelf solutions, Delta's product content increases from just 1-1.5% of the rack BOM to 2-3%. This "volume-price decomposition" method helps investors understand that even if rack shipment volumes remain unchanged, an increase in content per unit can still drive revenue growth; it is a core method in hardware supply chain analysis.

• Industry/Sector Analysis FrameworkPenetration S-curve

  Technology Penetration and Standard Establishment

  The report indicates that 800V DC power shelves will gradually evolve from a 20-30% penetration rate in Vera Rubin to becoming the standard configuration for Rubin Ultra. The Penetration S-Curve analysis reveals the path of new technologies from early introduction to rapid adoption, helping investors judge the pace and sustainability of growth for Delta's related products.

• Industry/Sector Analysis FrameworkSupply-demand framework

  TAM (Total Addressable Market) Estimation

  UBS estimates NVIDIA's rack power supply TAM will grow at a 60% CAGR from US$2.3bn in 2025 to US$15.6bn in 2029. TAM estimation derives the company's future revenue growth potential by forecasting the upper limit of the entire market size combined with Delta's potential market share; this is a common method in growth stock analysis.

• Event Arbitrage & Behavioral FinanceMargin of safety

  Scenario Analysis and Risk-Reward Ratio

  The report constructs three scenarios: Upside (NT$3,200), Base (NT$2,600), and Downside (NT$1,700), resulting in an upside/downside risk ratio of 2.2:1, skewed to the upside. This scenario analysis evaluates the reasonable valuation range of the stock by setting different business assumptions (e.g., strength of AI demand, speed of 800V DC ramp-up), helping investors determine whether the current price offers a margin of safety.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Delta Electronics (2308.TW)

  Beneficiary: Direct beneficiary of AI server power architecture upgrades and growing liquid cooling demand

  Strengths

  Leading position in AI power and liquid cooling markets with >50% share in L2A liquid cooling sidecars; scalable production capacity and vertical integration capabilities; margin expansion driven by a higher mix of high-margin businesses

  Comparison

  Currently trading at 29x 2027-28E average EPS, below UBS's target P/E of 35x and below the 30-40x range of global and Chinese peers

  Risks

  Severe supply chain constraints; weaker-than-expected PC/server demand; slower-than-expected IA recovery

Key data

• Q1 2026 RevenueNT$159.6bn-1% QoQ/+34% YoY, beating UBS and market expectations
• Q1 2026 Gross Margin / Operating Margin37.0% / 17.8%Improved by 240bp/150bp YoY respectively, driven by higher AI business mix and EV customer write-back
• Q1 2026 EPSNT$7.91Above UBS estimate of NT$7.69 and market consensus of NT$7.4
• Power Electronics Segment RevenueNT$85.6bn54% of total, +15% QoQ/+87% YoY, operating margin 22.1% (+190bp)
• 2026E Revenue Growth Forecast+40% YoYRaised from previous expectation of +37%
• 2026/27E EPS EstimatesNT$43.35 / NT$64.00Raised by 8% vs. prior estimates; above market consensus of NT$39/NT$60
• Target PriceNT$2,600Raised from NT$2,000, based on 35x 2027-28E average P/E
• NVIDIA Rack Power Supply TAM (2029E)US$15.6bnGrowing at a 60% CAGR from US$2.3bn in 2025
• Liquid Cooling Sales Mix (2025)9%Increased from 1%, maintaining high gross margins
• 2025 CapexNT$46.1bnExpected to grow >10% YoY in 2026

Impact & implications

UBS believes Delta is well-positioned in AI power supplies and liquid cooling solutions to sustain strong growth, with gross margins likely to maintain recent highs. The trend of AI servers evolving toward higher power density not only drives an increase in Delta's content per unit but also expands its product coverage across power shelves, DC-DC converters, battery backups, and liquid cooling. In the long term, new products such as solid-state transformers and solid oxide fuel cells are expected to further expand market opportunities starting in 2028. Delta already holds over a 50% share (by revenue) in the L2A liquid cooling sidecar market, and its capacity expansion plans provide support for upside risks.

Risks

• Severe supply chain constraints
• Weaker-than-expected PC/server demand
• Slower-than-expected Industrial Automation (IA) recovery
• Changes in end-market demand and competitive landscape may affect forecasts
• Geopolitical risks (e.g., prolonged conflict in Iran could impact next-gen AI infrastructure capex)

What to watch

• Shipment pace and ramp-up speed of 800V DC power shelves
• Whether Q2/Q3 revenue achieves expected 18%/11% QoQ growth
• Penetration progress of liquid cooling in GB300/VR200 NVL72 rack deployments
• Mass production timeline for NVIDIA's next-gen AI accelerators (Vera Rubin/Rubin Ultra)
• Execution of 2026 capex and progress in overseas capacity expansion
• Transition progress of Ceres SOFC fuel cells from prototyping to mass production